Landlord Insurance 101
What is Landlord Insurance?
Are you considering renting out your current residence? Or, are you in the process of purchasing or already own an investment property? If the answer is yes to either of these questions then it’s important to understand how Landlord Insurance works. Becoming a Landlord carries an increased degree of risk since you will most likely be renting the property to total strangers. You will not have any control over their actions or the actions of their guests, children or pets. Therefore, there is an increased risk of property damage or personal injury lawsuits. Much like a Homeowners Insurance Policy the Landlord’s Insurance Policy is your first line of defense against significant financial loss and needs to be understood to survive the potential pitfalls of becoming a Landlord.
Although most of the coverage associated with a Landlord Insurance Policy is similar to a Home Owners Insurance policy, some of the coverage provisions are modified or deleted to better fit the degree of exposure. First of all it is important to understand that no two Landlord Insurance policy products are created equal. Each Insurance carrier designs their policy differently, so there are many variables to consider rather than just the coverage amounts and the premium. Policies can vary by Policy type, Policy Language, Coverage, Exclusions and Endorsements. In this article I will explain the basic coverage and exclusions of the Landlord Insurance policy as well as some endorsements (additional coverage) that are worth considering plus some helpful ideas on what to look for and what to look out for when selecting a Landlords policy.
First the Basics
A Landlord Insurance policy is also referred to as a Dwelling Fire policy. This term can sound misleading since the coverage is designed to cover a variety of what are called perils or losses that can occur and cause damage to a home. You may even come across some Insurance industry terms such as DP1, DP3, DF1 or DF3. These refer to the type of policy language or policy contract on which the policy is written. If this is beginning to sound like boring insurance geek stuff don’t be alarmed. We will only discuss the best and most common Landlord Insurance policies that are used today.
A standard Home Owners Insurance policy provides coverage for the Structure or Dwelling itself. It also generally covers the detached or other structures that are on your property that are not attached to the main dwelling. (Which I will discuss in more detail shortly) The policy also provides coverage for Loss of rental Income when a covered loss to the home renders the home unfit to live in due to the severity of the damage. Some Personal Property of the Landlord is also covered. Coverage for Medical Payments to others is generally included as well as Premises and/or Personal Liability for legal exposure due to injuries and or certain types of legal disputes.
What types of Claims or Losses are Covered ?
A Fire Insurance Policy generally covers damage that is considered sudden and accidental. Losses that are covered are also called perils or covered losses. These can result from fires that originate in the kitchen from say a coffee pot that is left on all day, electrical fire or from a brush or wildfire. The resulting smoke Damage is also covered. Damage from storms like hurricanes or tornadoes, lightning, wind, and hail are covered as well. water damage (depending on the type of policy) is also generally covered. Say for example, if a pipe in the wall bursts or when the washing machine overflows.
Damage from burglary, theft and vandalism can also be covered depending on the policy type. So if the neighborhood kids decide to use the siding of your home for their latest spray paint masterpiece you’re covered. In addition, damage from falling objects such as a tree that topples during a heavy storm or an airplane or helicopter that falls from the sky and crashes into your house are also typically covered. Even damages resulting from an explosion or disruption from electrical current get covered as well. And finally what if there’s a snow storm and the weight of the ice or snow causes my roof to collapse? – you guessed it – Covered!
So…... What’s not covered?
There are also some common exclusions or things that are not covered that you need to be aware of. Foremost, damage to the land or real property that your home sits on is generally not covered by any type of Landlord or Home Insurance policy. Also, damage from earth movement or seismic activity which includes earthquakes and volcanic eruption are also not covered under a Landlord policy. However, coverage for damages resulting directly from earthquakes and seismic activity are covered under what is referred to as an Earthquake Insurance Policy which can be purchased separately. Damage from flood waters arising from a tidal wave, tsunami, flash flood, or mudslide are also not covered. However, by purchasing a separate Flood Insurance Policy will cover these perils. What about Nuclear disaster? This is also not covered due to the potential catastrophic nature. In addition acts of war, military action and terrorism are also excluded. Damage from deferred maintenance and or wear and tear – are also excluded. Damage from Insects like termites or infestation from rodents like rats or skunks is also excluded. Finally, in most cases damage from pathogenic organisms like mold, mildew, fungus or rust are also not covered. However, some preferred carrier policies will include at least some coverage for mold or mildew remediation.
For more helpful Information and expert buying tips continue to Landlord Insurance 201